Materiality

• The relevance of information is affected by its nature and materiality.
• In some cases, the nature of information alone is sufficient to determine its relevance.
• In other cases, both the nature and materiality are important...
• Information is material if its omission or misstatement could influence the economic decistions of users taken on the basis of the financial statements.

Reliability

• To be useful, information must also be reliable.
• Information has the quality of reliability when it is free from material error and bias and can be depended upon by users to represent faithfully that which it either purports to represent or could reasonably be expected to represent.
• Information may be relevant but so unreliable in nature or representation that its recognition may be potentially misleading.

Faithful representation

• To be reliable, information must represent faithfully the transactions and other events it either purports to represent or could reasonably be expected to represent.
• Most financial information is subject to some risk of being less than a faithful representaion of that which it purports to portray.
• This is not due to bias

Substance over form

• If information is to represent faithfully the transactions and other events that it purports to represent, it is necessary that they are accounted for and presented in accoundance with their substance and economic reality and not merely their legal form.
• The substance of transactions or other events is not always consistent with that which is apparent from their legal or contrived form.

Neutrality

• To be reliable, the information contained in financial statements must be neutral, that is, free from bias.
• Financial statements are not neutral if they influence the making of a decision of judgement in order to achieve a predetermined result or outcome.

Prudence

• The preparers of financial statements do, however, have to contend with the uncertainties that inevitably surround many events and circumstances...
• Such uncertainties are recognised by the disclosure of their nature and extent and by the exercise of prudence in the preparation of the financial statements.
• Prudence is the inclusion of a degree of caution in the exercise of the judgements needed in making the estimates required under conditions of uncertainty

Completeness

• To be reliable, the information in financial statements must be complete within the bounds of materiality and cost.
• An omission can cause information to be false or misleading and thus unreliable and deficient in term of its relevance.